Penn West says asset sales will help maintain debt covenant

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(Reuters) - Canadian oil producer Penn West Petroleum Ltd said on Thursday it expects to create “additional headroom” in a key debt covenant in the current quarter by using proceeds from asset sales to pay down debt.

Penn West amended some of its debt covenants earlier in the year after it had trouble meeting some terms related to its cash flow.

The company said on Thursday the ratio between its senior debt and EBITDA was 4.3 times, relative to a covenant that requires it to be 5 times or lower.

Besides asset sales, the company has also been monetizing foreign exchange hedges to remain within covenant levels.

“Given the progress we have made on our disposition program, we may no longer need to monetize our remaining foreign exchange hedges until next year,” Chief Executive David Roberts said in a statement.

Penn West said last month it had sold its 9.5 percent stake in the Weyburn oil field in southeast Saskatchewan for C$205 million ($155.9 million).

The company has raised C$810 million from asset sales this year, but some analysts have said it may need to do more to cope with a near-60 percent drop in global oil prices since June last year.

Penn West also said on Thursday that some production volumes would be impacted through the first half of 2016 due to issues accessing pipelines.

Third-party pipeline access issues, particularly in Cardium in Alberta, caused production to fall below the company’s expectation in the third quarter ended Sept. 30.

Total production fell 18.5 percent to 82,198 barrels of oil equivalent per day in the quarter.

Penn West’s net loss widened to C$764 million ($580 million), or C$1.52 per share, from C$15 million, or 3 Canadian cents per share, a year earlier.

The company recorded an impairment charge of C$435 million in the quarter due to low oil prices. It also recorded non-cash impairment charges of C$399 million on two sales agreements entered into in the quarter.